Tax-Smart Investment Planning Before Year-End

With just one month to go before the new
year, investors still have time to make tax-smart trading decisions that
could help them in the upcoming tax season, according to the experts at
GainsKeeper(R) and Capital Changes, both parts of Wolters Kluwer Financial
Services.

While year-end is typically a time when individuals look
at ways to improve their tax position, the recent market turmoil may have
even more investors searching for strategies that can help soften the hits
they have taken in the market this year. Stevie Conlon, tax director at
GainsKeeper, and Richard Ryndak, manager of international content
development at Capital Changes, suggest the
following:
Consider Selling Some of Your
Losses
Many investors should consider the benefits of tax loss
harvesting. For investors who have capital gains and have also incurred
losses in other areas of their portfolio, now is the perfect time to
consider selling their securities at a loss to offset the capital gains
tax liability.
"It is likely your portfolio has had a tough year," said
Conlon. "Many investors are looking at some stocks that have lost a lot of
value. Realizing losses to minimize capital gains can really help improve
portfolio performance."

Ryndak notes that if you own stock in a
company that has filed for bankruptcy, you may want to sell the stock and
take the loss this year, rather than waiting until the stock is deemed
worthless.
"In order to take a worthless stock deduction, you must show
that the stock has become completely worthless, meaning it has no present
value and no potential value," said Ryndak. "This is a question of fact,
and many bankrupt companies trade for fractions of a penny for years. It
may not always be clear in which tax year the stock becomes completely
worthless. Selling the stock establishes the loss with
certainty."

Watch for Wash Sales
Under the Wash
Sale Rule, investors who sell stock at a loss, but then buy a
substantially identical security within 30 days before or after the sale,
are not allowed to recognize that loss for tax purposes. That's because
that 61-day time frame is what the IRS calls the wash sale
period.

"Not only can the Wash Sale Rule prevent you from taking a
loss, but failing to account for wash sales can result in costly errors in
cost basis calculations for both the stock sold at a loss and the security
that triggered the wash sale," said Conlon. "Investors should be aware of
wash sales and their consequences in order to manage their portfolio in
the most tax efficient manner. The Wash Sale Rule can trap investors that
sell stock in a down market and then quickly repurchase shares when the
market turns up. This could be a major risk for many given recent market
volatility."

Account for Corporate Actions
With
all of the market activity during the past year, investors should
investigate whether any corporate actions, such as mergers, acquisitions,
splits and spin-offs, have affected the securities they own.

"In
the past 12 months, Capital Changes has reported more than 10,000
corporate actions affecting stocks, which means that many investors will
be affected at some point," said Ryndak. "In order to fully understand
your tax position, and complete your Schedule D, you need to know how
corporate actions have affected your portfolio."

Ryndak says
investors should pay particular attention to stock-for-stock mergers that
are taxable, meaning gain or loss must be recognized even though little or
no cash has changed hands. In such cases, the stock received in the merger
has a new holding period and a basis equal to its fair market value at the
time of receipt. Apart from having to report the gain or loss on the old
stock, investors must decide whether to hold or sell the new stock. If
there is a potential for short-term loss, it might be useful to offset
short-term gains that would otherwise be taxed at ordinary income
rates.

Ryndak and Conlon suggest investors consult with their tax
or financial advisor for guidance on optimal tax strategies. They can also
turn to software that automatically adjusts for wash sales and corporate
actions, and helps identify the most efficient tax lots to
sell.

"With professional guidance and technology, investors can
better determine what works best for their individual portfolio, avoid
tedious error-prone manual calculations and ultimately maximize after-tax
returns," said Conlon.

About Capital Changes
Capital Changes
provides a comprehensive source for current corporate action reporting. In
addition to detailed tax information and analysis, it provides timely and
concise summaries--updated daily--of spin-offs, mergers, exchange offers,
reorganizations, bankruptcies, stock dividends, splits and other corporate
actions affecting publicly traded securities of both U.S. and foreign
companies. With over 100 years of data coverage, leading financial
services firms rely on Capital Changes for its basis adjustments and its
legacy of unparalleled legal, tax and accounting analysis of corporate
actions. For more information, visit www.capitalchanges.com. visit www.WoltersKluwerFS.com.

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